UPDATE 2-Conn's Q4 profit beats Wall Street; outlook bright

BANGALORE, March 27 (Reuters) - Retailer Conn’s Inc (CONN.O) reported a fourth-quarter profit that beat market estimates as it reaped benefits from giving customers flexible options to buy products on credit and operating stores in areas not hit hard by the U.S. economic slump, boosting its shares as much as 14 percent.

The company, which sells home appliances and consumer electronics through nearly 70 stores in Texas, Louisiana and Oklahoma, also forecast strong earnings for the year ending January 31, 2009.

Conn‘s, which increased its revolving bank facility to $100 million from $50 million, was helped by a 5 percent rise in product sales and a fall in loan delinquencies during the fourth quarter.

The company, which competes with home goods retailers such as Williams-Sonoma Inc (WSM.N) and Tuesday Morning Corp (TUES.O), and consumer electronics retailers such as Best Buy Co (BBY.N), said it has performed well during economic downturns historically due to its flexible credit programs and customer loyalty.

“The fact that they will provide financing to a customer who has trouble getting finance in other ways is what keeps them going,” Morgan Keegan analyst Laura Champine said from New York.

Conn’s posted a net profit of $13.1 million, or 57 cents a share, including a charge of 1 cent a share, for the fourth quarter. It earned $12.7 million, or 52 cents a share, a year earlier. Revenue rose 6 percent to $225.9 million.

Analysts on average expected earnings of 50 cents a share, before special items, on revenue of $232.6 million, according to Reuters Estimates.

“When gasoline prices rise, many of our customers will choose to spend their discretionary funds on TVs, kitchen appliances and furniture as opposed to eating out and travel, therefore investing in homes and home entertainment,” President & Chief Operating Officer Timothy Frank said in a conference call.

STORES IN RIGHT PLACES

More than 80 percent of Conn’s stores are located in the Texas cities of Dallas, Houston, Austin and San Antonio. These cities are among the top-10 fastest growing in the United States, according to Census Bureau estimates released on Thursday.

Conn’s expects a sunny year ahead even as its competitors issued lackluster forecasts clouded by tighter spending by consumers amid rising prices and fears of a recession.

“The company’s (Conn‘s) stores are right in the oil belt, where unemployment rates are very low and incomes are healthy,” Morgan Keegan’s Champine said.

Conn’s COO Frank said the economies of the Gulf Coast, including Texas, Louisiana and Oklahoma, are not in a recession.

For fiscal 2009, Conn’s expects to earn about $1.85 to $1.95 a share, excluding items, while Wall Street analysts expect earnings of $1.85 a share.

Champine, who has a “market perform” rating on Conn‘s, said the company’s stock is “relatively cheap.”

The shares have fallen almost 32 percent over the past year and trade at about 9 times forward earnings, lagging the hardlines retailers sector’s average of about 25.

Shares of the company rose to a high of $17.14 Thursday, before closing up $1.93 at $17.00 on Nasdaq. (Editing by Pratish Narayanan)